Lao People's Democratic Republic: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Lao People's Democratic Republic

IMF Staff Country Reports, November 8, 2024

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Growth gathered momentum in 2023 on the back of recovering external demand.
Exchange rate depreciation continues and inflation remains persistently high.
The coming increase in the government’s financing needs—especially those foreign exchange-denominated—poses severe challenges.
Based on current conditions and policy settings, inflation and debt revaluation would likely intensify, implying a significant drag on growth over time.

Risk of an intensification of labor emigration and a decline in investment should exchange rate pressures exacerbate.
Increased pressures on the banking sector from deteriorating asset quality and continuing currency mismatch.
Potentially more frequent and more damaging natural disasters.
The external economic environment could turn out to be less favorable if growth in major trading partners was weaker than expected or commodity prices more volatile.

Addressing exchange rate depreciation and persistent inflation is central to avoiding further debt revaluation and growth drag.
Managing the coming increase in government financing needs, particularly foreign exchange-denominated obligations, is a severe challenge for policy makers.
Strengthening banking sector resilience is important given risks from deteriorating asset quality and currency mismatch.
Policies should consider the high uncertainty from external conditions and climate-related disaster risks to safeguard investment and labor dynamics.

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